Bangladeshi mutual funds had to maintain at least 75% exposure in listed securities until mid-2010s, which came down to 60%
Asset managers have requested the Bangladesh Securities and Exchange Commission (BSEC) to ease the regulation that compels them to invest at least 60% of their funds in listed securities.
At a meeting with the BSEC on Sunday, they suggested considering their declared fund type and investment style for this.
The asset managers requested the capital market regulator to resolve the existing issues that they are now facing in business.
There was no discussion on the secondary market pricing of mutual fund units, sources from the meeting told The Business Standard.
Over two-thirds of the local asset managers met with BSEC senior officials, who look after the sector. BSEC Chairman Professor Shibli Rubayat-Ul-Islam chaired the discussion.
An asset manager told The Business Standard, "The rule makes sense in terms of market stability but in some special cases it compels asset managers to absorb capital erosion, especially when the market is apparently heading for a big slide."
Like, at the market peaks, if a fund is allowed to sufficiently reduce its stock market exposure, it becomes easier to protect unitholders' interest reflected in the portfolio value, he added.
Bangladeshi mutual funds had to maintain at least 75% exposure in listed securities until mid-2010s, which came down to 60%.
Asset managers also said the regulator's popular request for market support during a downturn puts additional pressure on them when reducing market exposure helps to minimise risk of capital erosion.
They also drew the regulator's attention to relaxing the limit of investment in a single sector or scrip – respectively 25% and 10% of the fund assets.
"It is time to get some specialised funds with a focus on specific sectors like fixed income funds, infrastructure funds and we requested the regulator to think for case to case relaxation, which would reduce the risk of misuses of gross relaxation," said another asset manager who participated in the meeting.
All mutual funds, irrespective of their fund sizes, now get an equal number of primary shares against their quota in initial public offerings under the fixed price method. Some asset managers requested the BSEC to make it proportionate to the size of the fund.
Unlike closed-end funds, unit funds have no tenure and asset managers demanded that the BSEC allow the divestment of sponsors of opened-end funds at a rational time point.
All over the world open-end fund units are conveniently sold and bought back by agents at one's neighbourhood. In Bangladesh, investors still need to carry papers like DP 40 form from brokerage firms to an asset manager's office to buy and sell opened-end fund units, which is too cumbersome and discourages average investors. The asset managers called for more simplification.
Asset managers can charge a fund fee up to 2.5% of the asset under management for managing up to Tk5 crore. The fee comes as down as 1% when the fund size is over Tk100 crore.
Professional investment managers urged to introduce a performance bonus to incentivise better fund management in the industry.
They also sought a clear guideline from the BSEC on provisioning against unrealised losses in investment portfolios.
Currently, they are instructed to follow International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) in this regard and are supposed to maintain a provision equal to the capital loss they are counting on paper but yet unrealised as the securities are not sold off.
Some asset managers are provisioning partially, and some are not doing it at all.
BSEC officials asked the asset managers to control operational expenses and ensure practices that help protect and grow investors' income and wealth.